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Negotiable instruments

1.An indorser of an order instrument warrants that

A. The instrument is genuine and in all respect what it purports to be


B. He has a good title to it.
C. All prior parties had capacity to contract
D. The instrument is at the time of his indorsement valid and subsisting.
E. All of the above

2. Warrantors of the genuineness of the signatures on the instrument are


A. Indorsers C. Persons negotiating by delivery
B. Acceptors D. All of the above.

3. I. No person is liable on the instrument whose signature does not appear thereon.

II. If one who signs in a trade or assumed name will be liable to the extent as if he had signed
in his own name.

A. True; True C. True; False


B. False; False D. False; True

4. I. If the sum payable is expressed in words and also in figures and there is a discrepancy
between the two, the sum denoted by the figures (words) is the sum payable.

II. If the words are ambiguous or uncertain, reference maybe had to the figures to fix the
amount.

A. True; True C. True; False


B. False; False D. False; True

5. I. Where the instrument is in the hands of a holder in due course, a valid delivery thereof by
all parties prior to him so as to make them liable to him is conclusively presume.

II. Where the instrument is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed until the contrary is proved.

A. True; True C. True; False


B. False; False D. False; True

6. I. Where an incomplete instrument has not been delivered, it will (not), if completed and
negotiated without authority, be a valid contract in the hands of any holder, as against any
person whose signature was placed thereon before delivery.

II. Every contract on a negotiable instrument is incomplete and revocable until delivery of
the instrument for the purpose of giving effect thereto.

A. True; True C. True; False


B. False; False D. False; True

7. I. Where an instrument expressed to be payable at a fixed period after date is issued


undated, or where the acceptance of an instrument payable at a fixed period after sight
is undated, any holder may insert therein the true date of issue or acceptance, and the
instrument shall be payable accordingly.

II. The insertion of a wrong date does not avoid the instrument in the hands of a
subsequent holder in due course; but as to him, the date so inserted is to be regarded as
the true date.

A. True; True C. True; False


B. False; False D. False; True

8. I. Where the instrument or an acceptance or any indorsement thereon is dated, such date is
deemed prima facie to be true date of the making, drawing, acceptance, or indorsement,
as the case may be.

II. The instrument is (not) invalid for the reason only that it is ante-dated or post-dated,
provided this is not done for an illegal or fraudulent purpose.

A. True; True C. True; False


B. False; False D. False; True

9. I. In a joint obligation, each of the debtors is liable only for the proportionate part of the
debt and the creditor is entitled only to a proportionate part of the credit.

II. In a solidary obligation, the creditor may enforce the obligation against one of the
debtors.

A. True; True C. True; False


B. False; False D. False; True

10. An instrument is payable on demand

I. When so it is expressed to be payable on demand, or at sight, or on presentation.

II. In which no time for payment is expressed.

III. When it is issued, accepted, or indorsed when overdue.

A. True; True; True C. True; False; True


B. False; False; True D. True; True; False
11. I. Negotiable instrument may be issued in blank or simply by a mere signature of a
maker or drawer, who intends its issuance a such thereby, omissions of: date; value given
or value has been given; the place where it is drawn or payable does (not) affect the
instruments.

II. The existence of a seal of an instrument or designation of a particular kind of current


money in which payment is to be made does (not) affect the negotiable character of an
instrument.

A. True; True C. True; False


B. False; False D. False; True

12. I. An instrument which contains an order or promise to do any act in addition to the
payment of money is not negotiable.

II. The negotiable character of an instrument otherwise negotiable is (not) affected by a


provision which authorizes the sale of collateral securities if the instrument be not paid at
maturity.

A. True; True C. True; False


B. False; False D. False; True

13. An instrument is payable at a determinable future time, which is expressed to be payable

I. At a fixed period after date or sight.


II. On or before a fixed or determinable future time specified therein.
III. On or at a fixed period after the occurrence of a specified event which is certain to
happen, though the time of happening be uncertain.

A. True; True; True C. True; False; True


B. False; False; True D. True; True; False

14. I. An unqualified order or promise to pay is unconditional coupled with an indication of a


particular fund out of which reimbursement is to be made or a particular account to be
debited with the amount; or a statement of the transaction which gives rise to the
instrument.

II. An order or promise to pay out of a particular fund is not unconditional.

A. True; True C. True; False


B. False; False D. False; True
By Albano
1.The following are functions of a negotiable instrument. Choose the exception:
A. It increases purchasing power in circulation.
B.
C. As legal tender.
D. As substitute for money.
E. It increases credit circulation.

2. A check upon which the holders signature must appear twice, one to be affixed by him at the
time it is issued and the second or countersignature, to be affixed by him before it is paid,
otherwise it is incomplete is called

A. Certified check C. Travelers check


B. Stale check D. answer not given.

3. A check drawn by the bank upon itself and payable to a third person.

A. Certified check C. Travelers check


B. Managers check D. Crossed check

4. A bill of exchange to which no document is attached when presentment for payment or


acceptance is made:

A. Trade acceptance. C. Clean bill of exchange.


B. Bank acceptance. D. Documentary bill of exchange.

5 A bill of exchange to which no document is attached when presentment for payment or


acceptance is made:

A. Trade acceptance. C. Clean bill of exchange


B. Bank acceptance D. Documentary bill of exchange

7 Which of the following is non-negotiable?

A. I bind myself to pay B or bearer P10,000. (Sgd) A.


B. I acknowledge being indebted to B in the amount of P10,000. (Sgd) A.
C. I promise to pay to the order of B P10,000. (Sgd) A.
D. I agree to pay B or order P10,000 on demand. (Sgd) A.

8 An instrument is rendered non-negotiable if

A. There is an indication of a particular fund out of which reimbursement is to be made.


B. There is an indication of a particular account to be debited with the amount.
C. The instrument is payable out of a particular fund.
D. Answer not given.
16 Can a bill of exchange qualify as a negotiable instrument if

I. It is not dated.
II. The day and the month but not the year of its maturity is given.
III. It is payable to cash.
IV. It names two alternative drawees.

I II III IV
A. Yes Yes Yes No
B. Yes No Yes No
C. No No Yes Yes
D. No Yes No No

17 I promise to pay to the order of X P10,000 30 days after date. (Sgd) Y, dated blank.

1st rule: The maturity date of the above promissory note will be counted 30 days from
the date of issue of the instrument.

Pay to the order of X P10,000, 30 days after sight. To Y (Sgd) Z, dated 10/15/2010.

2nd rule: The maturity of the above promissory note will be counted 30 days from the
date of the instrument.

A. Both rules are wrong.


B. Both rules are correct.
C. 1st rule correct; 2nd rule wrong.
D. 1st rule wrong; 2nd rule correct.

18. A check for P100,000 was drawn against drawee bank and made payable to XYZ Marketing
or order. The check was deposited with payees account at RST Bank which then sent the check
for clearing to drawee bank.

May the drawee bank refuse to honor the check on ground that the serial number thereof had
been altered?

A. Yes, since the serial number is an item which is an essential requisite for negotiability.
B. Yes, because the alteration of the serial number is a material alteration.
C. No, since the serial number is not an essential requisite for negotiability and its
alteration is not a material alteration.
D. No, since the serial number is not an essential requisite for negotiability even if its
alteration is a material alteration.

19. I. If a promissory note is incomplete and undelivered by the maker, a holder in due course
can still recover from the maker.
II. A holder in due course does not have the right to recover from the maker if the maker did
not deliver the complete promissory note to the payee.

A. True; True C. False; False


B. True; False D. False; True

20 Ed issued a negotiable promissory note and authorized Maan to fill up the amount in blank
up to P50,000 only. However, Maan filled it up to P75,000 and negotiated the note to Wally, a
holder in due course.

Which of the following is false?

A. Ed is liable only to Wally up to P50,000.


B. If Ed dishonors the note, Maan is liable to Wally for the full amount of the note.
C. If the note is presented to Ed, she is liable to Wally for P75,000.
D. Both Ed and Maan can beheld liable for the full amount of the note.

20. Nika issued a negotiable promissory note and authorized Tiny to fill up the amount in blank
up to P50,000 only. However, Tiny filled it up to P75,000 and negotiated the note to Pia, a holder
in due course.

A. Nika is liable only to Pia up to P50,000.


B. If Nika dishonors the note, Tiny is liable to Pia for the full amount of the note.
C. If the note is presented to Nika, she is liable to Pia for P75,000.
D. Both Nika and Pia can be held liable for the full amount of the note.

22 Henry succeeded in making Kate affix her signature on a check without Kates knowing that
it was a check. At the time of signing, the check was complete in all respects. Henry intended to
cash the check the following morning, but that night, it was stolen by Vic who succeeded in
negotiating the same to Al who cashed the check the following morning.

Can Kate validly refuse to have the amount of the check deducted from her bank deposit if Al
is
1. A holder in due course?
2. Not a holder in due course?

Q1 Q2 Q1 Q2
A. Yes Yes C. No No
B. Yes No D. No Yes

26 A promissory note is signed in behalf of the principal by an agent as follows:

Juan dela Cruz


Per procuration: Manny C. Co

This operates as notice that the agent has:


A. Unlimited authority for and in behalf of the principal.
B. A limited authority to sign, and the principal is bound only in case the agent in so
signing acted within the limits of his authority.
C. A limited authority to sign, and the principal is bound only in case the agent in so signing
acted outside the actual limits of his authority.
D. Answer not given.

27 John makes a negotiable promissory note payable to his order, signing Pedros name thereon
as maker without Pedros knowledge and consent. John then indorses the note to Jose, who in
turn, indorses it to Carlos under circumstances which make Carlos a holder in due course.

Q1: May Carlos enforce the note against Pedro?


Q2: If Pedro dishonors the note, may Carlos hold John and Jose liable on their
respective indorsements?

Q1 Q2 Q1 Q2
A. Yes Yes C. No No
B. Yes No D. No Yes

28 Mimi makes a note payable to the order of Pete who indorses it to Ali. Fheb obtains
possession of the note fraudulently, forges Alis signature and indorses it to Ben who in turn
indorses it to Cane. In this case, Cane can

A. Enforce the instrument against Mimi and Pete.


B. Enforce the instrument against Ali.
C. Enforce the instrument against Ben.
D. Answer not given.

29 Joan makes a note payable to the order of Ped, who indorses it to Juana. Somehow, Ron
obtains possession of the note and forging the signature of Juana, indorses it to Amy. Amy then
indorses the note to Neil, the holder.

Which of the following is false?

A. Juana has a right to demand payment from Joan.


B. If Joan dishonors by non-payment, Juana has no right of recourse against Ped.
C. Neil has no right of recourse against Joan, Ped or Juana.
D. Neil can proceed against Ron and Amy.

30 A issued a negotiable promissory note to the order of B for P10,000 payable 30 days after
date. Later B indorsed it to C. then X stole the note from C, forged the signature of C and
negotiated it to D, and D to E, E to F, the holder. On maturity of the note, which of the following
statements is not correct and invalid?
A. F can collect from either D or E, because their signatures are genuine and the note is
operative against it.
B. F can collect from A because A cannot put up forgery as his defense.
C. F can not collect from C because it was Cs signature which was forged.
D. F can not collect from B because B is a party prior to the forgery.

31 M makes a P10,000 note payable to the order of O who indorses it to A. F obtains possession
of the note fraudulently, forges As signature, alters the amount to P70,000 and endorses it to B
who in turn endorses to C. in this case:

A. C can enforce the note against A


B. C can enforce the note against any person.
C. C can enforce the note against M and O.
D. C can enforce the note against B.
32 I - A holder for value is an endorsee who has both the legal title and the beneficial interest
to the instrument and is subject to both real and personal defenses available against him.

II Every person whose signature appears in the negotiable instrument is presumed to have
become a party thereto for value.

A. True; True C. False; False


B. True; False D. False; True

34. A issued a promissory note to the order of B for P10,000 payable on September 20, 2011 in
payment of a TV set sold by B to him. B failed to deliver the TV set to A and instead transferred
the note to C for value but without indorsement. Which of the effects of the transactions listed
below is valid?

A. C is deemed a holder in due course when B transferred the note to him.


B. C becomes a holder in due course when B indorsed the note to C on October 4, 2011.
C. C has no right to compel B to make the proper indorsement to him.
D. C cannot collect from A because As defense of lack of consideration.

35 P appointed A as his agent to buy sugar. Thereafter, A drew a bill of exchange for the price of
the sugar in favor of S, the seller. P accepted the bill. After the acceptance of P, A negotiated the
bill to H, a holder in due course. When the sugar was delivered, P refused to pay the bill on the
ground that the sugar was deteriorated. Is P liable?

A. No, the sugar is defective.


B. No, there is absence of consideration.
C. No, because there is a failure of consideration.
D. Yes, even if the consideration failed because H is a holder in due course.
36 An accommodation party is not:

A. A surety of the accommodated party.


B. A real party but merely lends his name.
C. Liable to a holder in due course.
D. A signatory to the instrument as maker, drawer, acceptor or indorser.

38 This is not a negotiation of a negotiable instrument:

A. Assignment.
B. Delivery of a bearer instrument.
C. Indorsement completed by delivery of an instrument payable to order.
D. Delivery of an instrument to the payee.

39 A issues a bill payable to the order of B. Later B without endorsing the bill transfers for a
consideration said bill to C. the following except one, are the valid effects of the transfer.

A. C acquires the right to have the endorsement of B.


B. The bill is merely assigned and not negotiated.
C. C becomes a holder.
D. The transfer vests in C such title as B had thereon.

40 I promise to pay to the order of B P10,000 30days after sale. (Sgd) A. which of the
following indorsements of the above promissory note is not valid?

A. Pay to C and D (Sgd) B.


B. Pay to C P5,000, balance of this note (Sgd) B if P5,000 has been paid by A.
C. Pay to C P5,000 to D P5,000. (Sgd) B.
D. Pay to C and D, partners (Sgd) B.

41. Pay to Mar Perez, notice of dishonor waived is an example of:

A. Special indorsement
B. Facultative indorsement
C. Qualified indorsement
D. Restrictive indorsement

42. Pay to Mon in trust for Jess (Sgd) Jun, is the example of

A. Conditional endorsement
B. Qualified endorsement
C. Facultative endorsement
D. Restrictive endorsement
43. When an indorser waives presentment and notice of dishonor, he increases his liability. His
indorsement is:

A. Alternative endorsement
B. Qualified endorsement
C. Facultative endorsement
D. Restrictive endorsement

44. I - If the instrument is payable to order, it is negotiated by indorsement plus delivery.

II- If the instrument is payable to bearer, it is negotiated only by delivery.

A. True; True C. False; False


B. True; False D. False; True

50. I - Every holder is deemed prima facie to be a holder in due course.

II- A holder in due course is one who possesses both the legal and beneficial interest to the
instrument but is free from real defenses only.

A. True; True C. False; False


B. True; False D. False; True

53. This defense is attached to the instrument itself and can e set up against the whole world,
including the holder in due course.

A. Real defense C. Equitable defense


B. Personal defense D. Self- defense

54. Which of the following is an example of Real Defense?

A. Acquisition of the instrument by force.


B. Acquisition of the instrument for illegal consideration.
C. Fraud in the indorsement.
D. Fraud in factum.

55. Which of the following is not a real defense?

A. Fraud in factum.
B. Incomplete and undelivered instrument
C. Insertion of a wrong date.
D. Forgery of a signature

58. Which of the following is not a personal defense?


A. Absence of consideration.
B. Forgery of a signature
C. Non-delivery of a complete instrument.
D. Failure of consideration.

60. Secondarily liable

A. Maker of a promissory note


B. Acceptor of a bill of exchange
C. Drawee
D. Drawer of a bill

61. Which of the following is not a secondary party?

A. Acceptor for honor


B. Drawer
C. Payor
D. Endorser

65. Which is not correct? The acceptor by accepting a negotiable instrument:

A. Admits the existence of the payee and his capacity to endorse.


B. Admits the existence of the drawer, the genuineness of his signature and his capacity to
draw the instrument.
C. Admits the existence of the endorser, the genuineness of his signature and his
authority to draw the instrument.
D. Admits that he will pay it according to the tenor of his acceptance.

67. A general indorser is distinguished from the irregular indorser in that a general indorser

A. Makes either a blank or special indorsement.


B. Indorses after its delivery to the payee.
C. Is liable to the payee and subsequent parties unless he signs for the accommodations of
the payee, in which case he is liable only to all parties subsequent to him.
D. Answer not given.

67. Warranties of a general indorser, except

A. That the instrument is genuine and in all respects what it purports to be.
B. That he has good title to it.
C. That he had no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
D. That the instrument, at the time of indorsement, was valid and subsisting.
69. Warranty 1: Engages to pay according to the tenor of the instrument/acceptance.

Warranty 2: Admits the existence of the payee and his capacity to indorse.

The above warranties are available to:

Maker Acceptor Drawer


W1 W2 W1 W2 W1 W2
A. Yes Yes Yes Yes No No
B. Yes No No Yes Yes Yes
C. No No Yes No No Yes
D. Yes Yes No No Yes No

71. Requisites of a valid presentment for payment of a promissory note, except

A. Made within a reasonable time after issue.


B. Made at a reasonable hour on a business day.
C. Made by the holder or his agent.
D. None of the choices.

73. I - An instrument is dishonored by non-payment when it is duly presented for payment and
payment is refused or cannot be obtained.

II When the instrument is dishonored by non-payment, an immediate right of recourse to


all parties secondarily liable thereon accrues to the holder.

A. True; True C. False; False


B. True; False D. False; True

74. Presentment for acceptance of a bill of exchange is not necessary

A. Where the bill is payable after sight.


B. Where the bill is drawn payable elsewhere than at the residence or place of business of
the drawee.
C. Where it is payable at a certain number of days after date.
D. Answer not given.

76. The holder is required to give notice of dishonor to the drawer to make him liable on the
instrument in one of the following cases:

A. Where the drawer is the person to whom the instrument is presented for payment.
B. Where the drawer and the drawee are the same person.
C. Where the drawer has countermanded payment.
D. Where the instrument was made or accepted for his accommodation.
77. Which of the following does not discharge a negotiable instrument?

A. Payment by maker of a promissory note before maturity.


B. Intentional cancellation of the instrument by the holder.
C. Payment by the party primarily liable to holder or his authorized representative.
D. Voluntary surrender of the instrument by the holder to the maker without collecting.

78. Which of the following does not discharge a negotiable instrument?

A. Payment in due course by the accommodated party which the instruments made or
accepted for his confirmation.
B. Payment in due course by the principal debtor.
C. Intentional cancellation of the instrument by the maker.
D. Payment in due course by the accommodation maker.

79. When is a negotiable instrument not discharged?

A. When the holder thereof intentionally cancel the instrument.


B. When the principal debtor becomes the holder of the instrument before, at or after
maturity in his own right.
C. When it is paid in due course by the principal debtor.
D. When it is paid in due course by the party accommodated where the instrument is made
or accepted for accommodation.

80. In the renunciation of holder of his rights against any party to the instrument, which of the
following statements is false?

A. If the instrument is delivered to the person primarily liable without collecting, it


constitutes oral renunciation.
B. If renunciation is made in favor of any party secondarily liable, all parties subsequent to
him are discharged from liability.
C. Renunciation will not affect the rights of a holder in due course without notice.
D. If the renunciation is made in favor of the party primarily liable, it must be made
before, at or after maturity.

82. Which of the following does not constitute material alteration?

A. Changing the words or bearer for the words or order.


B. Striking out the name of the payee and substituting another person in his face.
C. Alteration of the marginal figures of a note where the sum stated in words in the
body remained unchanged.
D. Change in the date from which interest is to run.

83. Protest is not necessary


A. Upon dishonor by non-acceptance of a foreign bill appearing on its face to be such.
B. Upon dishonor by non-payment of a foreign bill appearing on its face to be such, if not
having been previously dishonored by non-acceptance.
C. In cases of inland bills and promissory notes.
D. Answer not given.

84. The following except one, are the requisites of acceptance for honor on a bill:

A. The bill must be previously protested for dishonor by non-acceptance or protested for
better security.
B. The bill is overdue.
C. The holder must give his consent.
D. The acceptor for honor must be a stranger to the bill.

85. The distinction between acceptance for honor and ordinary acceptance is that

A. In acceptance for honor, protest is not required while in ordinary acceptance, there must
be previous protest.
B. In acceptance for honor, the acceptor is the drawee while in ordinary acceptance, the
acceptor must be a stranger to the bill.
C. In acceptance for honor, the consent of the holder is required while in ordinary
acceptance, such consent is not required.
D. Answer not given.

86. The following are instances when a drawee bank may refuse to pay checks drawn against it,
except one:

A. If there is a stop payment issued by the drawer.


B. When the bank receives notice of the drawers death.
C. If the drawers deposit is insufficient.
D. If the drawer is insolvent.

87. The P1,000 bills issued by the Central Bank and in circulation are considered

A. Bills of exchange C. Legal tender


B. Checks D. Promissory notes

88. One of the following statements is not true, which is it?

A. A creditor is not bound to accept a check in satisfaction of his demand, because a check
even if good when offered, does not meet the requirements of legal tender.
B. The obligation of a debtor who had agreed to pay in dollars in a foreign bill of
exchange shall be discharged in Philippine currency measured at the prevailing rate
of exchange at the time the obligation was incurred.
C. The Philippine peso bills when attempted to be exported, as when carried in excess of
that allowed by the CB regulation, may be deemed to have been taken out of a domestic
circulation as legal tender and thus, treated as commodity.
D. The purchasing power or value of money or currency depends upon, can come into being,
can be created or brought about by a law enacted by the legislative department of the
government.